Export income, local sales cannot be clubbed: ITAT

MUMBAI: Companies are entitled for full tax deduction of export income under section 80 HHC of the Income-Tax Act, even if the same company generates income from local sales also, according to a recent ITAT judgement. The ITAT, Mumbai, held that profits of units that generate export income should be computed separately for calculating the quantum of exemption under section 80 HHC.
ITAT gave this verdict on an appeal filed by Miku Agencies against the department which clubbed the locally generated income with export income for determining the allowable deduction. The assessment year in this case was 1991-92. The company, Miku Agencies, has two branches, at Mumbai and Baroda.
While the Mumbai branch was exporting auto spare parts to British and Japanese buyers, the Baroda branch was supplying spare parts to Tatas and Leyland.
The contention of the company was that 100% of the profit from the Mumbai branch was exempt from tax and this income should not be clubbed with the income of the Baroda branch while calculating the exemption under section 80 HHC.
The company, represented by Y P Trivedi, a senior tax lawyer, contented that both the branches of the company were located at different places, run by different sets of employees, with different trading and profit and loss accounts. And the two partners located at Mumbai were exclusively looking after the export business of Mumbai, while the two partners at Baroda were looking after the local sales.
The company’s appeal was on the ground that the commissioner erred in not appreciating the fact that the company’s business at Baroda and business in Mumbai were of a different nature and the company’s profit in Mumbai should have been computed under section 3(a) of the section 80 HHC and the entire profit of the Mumbai branch should be exempted.